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Marriage's lost benefits: tax credits and election promises

British conservatives claim that the tax system penalises marriage and that this is responsible for social break down. Simon McMahon finds the first claim fair, but the second less so
Simon McMahon
10 February 2010
OK in depth

Married couples are becoming rarer in Britain, as marriage rates reach the lowest levels since records began in 1862 according to the Office for National Statistics. Since becoming Tory leader, David Cameron has criticised the ‘anti-marriage bias’ in the tax system as responsible for this decline, interpreting the problems posed by anti-social behaviour in Britain as the result of an unfair tax system that discourages union between parents. He tells us that at the heart of the problem lies the decline of marriage as a solid foundation for the family, denying children the necessary stability to grow up into responsible, sociable adults. This reflects the findings of the influential paper Breakthrough Britain, published in 2007 by Iain Duncan Smith’s Centre for Social Justice, which endorsed the institution of marriage due to its proven advantages to children and wider society.

Is the tax and benefits system unfair towards married couples? Does it really discourage marriage? Has it caused the division of British families and society? The answer is that although the current system is theoretically fair, it does provide economic incentives to the division of families. However, to state that this is the cause of Britain’s social problems is to tell only a part of the whole story.

The current policy on tax and benefits for married couples interprets parents as separate persons. This system of independent taxation, introduced in 1990, states that in a family, each parent is taxed separately and each is entitled to a personal allowance, regardless of their status as married, cohabiting or separated. Initially this was accompanied by the married couple’s allowance (MCA), providing an extra tax allowance for married persons. However, due to favouring those in the highest tax brackets the MCA was withdrawn in 2000, and replaced by the children’s tax credit in 2001 and later by the child tax credit in 2003, based on the income of the family and awarded to the offspring’s main carer.

Entitlement for benefits is founded on the individualisation of couples. All persons, whether married or living together, are treated in the same way when they are assessed for entitlement to most welfare benefits, working tax credits or child tax credits. Although claims must be presented by parents as a couple, the income, savings and financial needs of each person is taken into account. As noted by Ed Balls, Secretary of State for Children, Schools and Families, this is intended to support families of "all shapes and sizes" by taking into account the needs of the parents as individuals, regardless of whether they marry or not.

Is this system fair? From a theoretical perspective, yes. Firstly, it represents equality between the sexes. From 1799 until 1990 tax and allowance systems were male-oriented, meaning a married woman’s income would be treated as part of her husband’s, limiting her financial independence. Today all taxpayers, male or female, married or single, are treated equally and are entitled to the same personal allowance, calculated against household income. Also, families in which a primary earner is killed or absconds from parental duties are protected from undeserved economic hardship. Secondly, by assessing needs rather than life choices such as cohabitation or marriage, the system is directed at improving the living conditions of the most disadvantaged in society without attaching any normative, cultural or religious value to the way taxes and benefits are calculated. As a result, by 2007 working families tax credits had lifted over 600,000 children out of poverty (according to the Chancellor Alistair Darling in Treasury Questions on 12 July 2007).

But what is the outcome of this? The intended result is the creation of stable platforms for children from divided families, yet a body of evidence suggests that the system actually promotes the division of families and that this in turn causes the spread of instable childhood environments.

Firstly, the assessment of couples as individuals encourages them to live separately, as those living alone are judged to have greater needs than couples living together. While the amount paid as tax is equal for all, cohabiting or married parents receive only half the amount of working tax credits as separately-living parents. Also, if a lone parent begins to cohabit, the new partner will, in general, cease to be entitled to any means-tested support that they received when living alone.  

Secondly, a spouse will lose their tax allowance if they stay at home to care for their child while their partner works, due to the eradication of the MCA.

Thirdly, due to the individual nature of tax allowances, they cannot be transferred from one partner to another.

Fourthly, as noted by the Institute for Fiscal Studies in 2007, if a lone parent who is already entitled to working tax credits and child tax credits starts to cohabit, that family’s entitlement to tax credits will fall because of the extra income brought in by the new partner. This is because, as noted above, entitlement takes into account the income, savings and financial needs of both individuals in the household. The outcome is defined as the couple penalty, and is reflected in a YouGov poll for the Centre for Social Justice finding that half of those out of work or in part-time work understand that couples are materially better off living apart.

So the current tax and benefits system does not improve the conditions of the least well off in society, but rather encourages these to raise their children in separated families. Add to this the wealth of studies such as the Moynihan Report from 1960s USA, or in Britain The Cambridge Study in Delinquent Development and the report Breakthrough Britain from The Centre for Social Justice (www.centreforsocialjustice.org.uk) arguing that in the majority of cases children from single parent families are more likely to be offenders as a result of their childhood and we arrive at the Conservative’s argument: children are statistically less likely to fall into crime, to fail at school and to have teenage pregnancies if they are raised by two parents together, and those parents are more likely to stay together if they are married.

However, to interpret this statistical correlation as evidence that single parent families cause anti-social behaviour would be to skew the information. It is therefore potentially misleading to assume that an anti-marriage bias in tax and benefits is the source of declining marriage levels and rising anti-social behaviour. The reasons for this are tied to wider social processes: parental separation alone does not create a broken society, and people are more than cost-benefit maximising individuals: the declining importance of marriage is not simply due to economic reasons, but is accompanied by a culture that is more individualistic, more tolerant of single parents and less influenced by the Church. For example, Sweden has the highest divorce and parental separation rates in the world, yet is not known as a hot-bed of anti-social behaviour. This demonstrates that the relationship between marriage and social problems is not necessarily one of cause-effect. Instead, where multiple social ‘risk factors’ are present anti-social behaviour is more likely to be found. Personalities and behaviour are the product of family upbringing and the specific social environment: children from single parent families turn to delinquency when in impoverished social contexts with few opportunities, poor education, antisocial peers, and a lack of positive role models.

The current tax and benefits system does incentivise the division of families, but to blame this situation for the decline in marriage and this worsening of Britain’s social problems only takes into account a part of the picture. Consequently, policy proposals to promote marriage will not repair broken families or ‘Broken Britain’ if not accompanied by steps to provide poorer families with opportunities for social mobility and Britain’s youth with a range of role models outside of the home.

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